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Month: September 2014

The votes are in and Scotland has given a clear answer, however, given some last minute offers of the unionist parties, it is not quite clear what the question was. The ballot paper could not have been clearer – Should Scotland be an independent country? However, following polls indicating that the Yes and No campaigns were coming together that very simple question morphed into something along the lines of do you want independence or an increased level of devolution yet to be fully specified (terms and conditions apply…).

There is consensus amongst the main parties that the whole constitutional settlement for the UK has been thrown into the melting pot. If Scotland is getting Devo Max then the position of Wales, Northern Ireland, and most challenging of all England needs to be looked at.

Whilst the debate in the media and amongst politicians of all parties is about structural reform it is possible that this is profoundly misplaced.

Is it likely that the Scottish people voted for a a different structure for making political decisions? Or is it more likely that they voted for some different decisions?

In common with the rest of the UK and indeed most of the advanced economies in the world the living standards of the bulk of the population in Scotland have at best stagnated. Furthermore that process long predates the Great Recession. For some thirty years the share of GDP going to “hard pressed working people” has been going down.

Since the credit crunch the process has accelerated as the public benefits of the welfare state have been cut hitting hardest many of the most vulnerable in society. Interestingly the Yes vote in Scotland appears to have been strongest amongst those on low incomes. But for those in work the position has deteriorated also, Low pay, zero hour contracts, underemployment characterise the economy for many.

Going forward the prospect of secular stagnation is worrying many economists with the links between technological innovation, growth and rising living standards breaking down. When growth leads to rising living standards for all then inequality might be a moral concern but not a political issue. If growth stops, or it’s link to rising living standards is broken then inequality becomes “the” problem.

If constitutional reform leads to a different set of institutions and actors saying we have to “do more with less”, “live within our means”, “make difficult choices” then I suspect we are going to spend a whole lot of time, energy and money to get to where we started. A population becoming more and more alienated from the orthodox politics of austerity.

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In the run up to the 1992 US election Bill Clinton’s campaign strategist James Carville coined the phrase “It’s the economy stupid” as an aide memoir for campaign staff. It is credited by some with playing a significant part in Clinton’s election. At the time such a brief shorthand probably had a great deal of relevance. There is however a question about its potential to drive voters in the next UK election.

Back in 1992 it was probably possible to look back and see a clear and positive link between economic progress as measured by GDP and increasing standards of living. In truth even then it may be argued that these things were beginning to diverge however the picture was not clear.

Since then two broad changes have taken place which challenge the previous linkages. Firstly, there are all kinds of issues about the extent to which GDP is an effective measure of economic activity. In a “weightless” economy more and more economic activities are missed by the standard definitions of GDP which were created in a very different time.

Further, as David Cameron has pointed out there are issues about “happiness” and technological evolution that are simply not considered by GDP but which are of increasing interest to policy makers.

Minor definitional changes can change significantly the picture of the economy that GDP produces. The recent changes demanded by the EU including income from prostitution and drugs were estimated to add £10bn to the UKs’ GDP in 2009 (I would love to see the tax returns claiming these expenses!). Such changes could transform what was previously seen as a period of negative growth as positive with all the political consequences that flow from this. No wonder predicting the future is difficult when the past doesn’t keep still!

The other major change is that the link between economic growth and general increase in well being and wealth appears to have been broken. Over the past thirty years median incomes have made little progress indeed in the US have declined in real terms.

The Great Recession has accelerated a. Process whereby the plight of the vast majority of those in work has got significantly worse as their pay has been held at below inflation levels, part time working and under-occupation have increased, zero hour contracts have become endemic in some industries notably retail and hospitality, and a whole generation of graduates are languishing in jobs that make no use of the expensive education they have no chance of being able to pay for.

It is because of this there was little rejoicing in the general population when growth returned to the economy. The Chancellors’ claim that fiscal austerity was working (wrong for so many reasons) sounded a bit like the claims of the surgeon that the operation was a great success it was just a shame the patient had died!

Increasingly people are asking who economic growth is for? As the economy gets better will our living standards improve? At the same time they see some for whom 6 years of public austerity have seen massive increases in private wealth.

There is a lot of history going on at the moment. Western politics in the US, UK and Europe are experiencing a general malaise with a worrying level of cynicism growing about what are called the political elite. The Tea Party, UKIP, the Scottish referendum, a host of ultra right and left wing parties across Europe are symptoms of deeper issues which have their roots in a decline in the living standards of people and little belief that they will change when the economy recovers. This is a toxic mix.

If politicians continue to the old picture of the economy they are set to fail and add to the sense of their being out of touch. They need to address wider issues about the distribution of wealth which present some of the real “difficult choices” that the Prime Minister and the Chancellor so often talk about.